Last Updated : 08 March 2013 at 22:00 IST
We have heard that markets wield a double edged sword. It gives with one hand and takes with the other in a game of hide and seek; bull and bear. But do we also know that the very volatility that often define the precious metals market is also responsible for the coin shortage that was recently experienced in 2013 American Eagle Silver Bullion coins?
Behind the shortage
-The United States Mint has temporarily sold out of 2013 American Eagle Silver Bullion coins. As a result, sales are suspended until we can build up an inventory of these coins. Sales will resume on or about the week of January 28, 2013, via the allocation process.--US Mint
-“Due to very high demand for Silver Maple Leaf bullion coins, the Royal Canadian Mint is carefully managing supply to ensure all our bullion distributors are served and we continue to take orders,” Alex Reeves, senior manager, communications for the Royal Canadian Mint, told Kitco News and was quoted by Forbes as saying.
Two thunderbolts!
And they began to engage and keep rumour mills busy.
Reports began to emerge that the era of silver shortage had indeed given its clarion call and it was only a question of when before silver prices would hit the $100 mark for an ounce.
While it could not be said if the shortage of coins which resulted in their distribution getting curtailed was a shortage of silver per se, one has to note that strict vendor policies by US Mint may have created a production lag along with the possible lacking of a minimum purchase guarantee given to vendors.
While the former --strict vendor policies by US Mint--could not be compromised on grounds of quality, the latter looks yet to be addressed from the words of Richard A. Peterson, Deputy Director of the United States Mint as told to Silver News, a publication by Silver Institute.
“The situation at our suppliers is understandable. The investment required to establish additional capacity requires careful financial analysis, and the demand from global mints did not exist throughout the early part of the last decade. The United States Mint has worked diligently over the last five years to grow our supply of silver blanks.”
This seems to point to lack of a minimum order guarantee placed with vendors.
Now, if the Mint could guarantee a minimum amount of purchase to vendors, the shortage issue could be addressed as the vendors may be much more confident in setting up additional facilities.
The context
American Eagle Silver Bullion Coin Sales
Calendar Year AE Silver Ounces Ordered
2007 9,887,000
2008 19,583,500
2009 28,766,500
2010 34,662,500
2011 39,868,500
2012 33,742,500
2007 9,887,000
2008 19,583,500
2009 28,766,500
2010 34,662,500
2011 39,868,500
2012 33,742,500
On several occasions, the US Mint was found unable to meet excess demand from coin enthusiasts as outlined in the introduction. When asked the reason behind the same, Richard A. Peterson said a few words which is worth quoting here:
“The rapid increase in demand for all silver bullion coins has put a severe strain on all global suppliers and, as a result, the Mint was unable to obtain a sufficient number of blanks to meet market demand. As a result, we were forced to allocate coins to our Authorized Purchasers...
Overall, we attempt to manage our supplies in a manner that ensures we have a sufficient number of coins to meet the weekly demand of our Authorized Purchasers. When that demand exceeds our ability to acquire a sufficient number of blanks, we then go on allocation until our inventories can be rebuilt again and the supply of blanks increased so that time spent on allocation is minimized.” he said.
Strict vendor policies
The US Mint has a selected set of vendors who supply the Mint with 'blanks' which in turn are used to strike coins out. Needless to say, the stipulations of supply are stringent and daunting. Only high-quality vendors would be able to meet them. And they may really be counted in fingers of the palm of your hand.
“In 2007, the US Mint procured 11 million silver bullion coin blanks; in 2011, the figure stood at 38 million blanks. Compared to 2007, that is an increase of 350%. All these blanks are purchased from companies in US.” the Mint's response to US Congress in a hearing said.
When the Mint wanted to procure beyond 38 million blanks, it conducted three year-long solicitations starting 2007 (perhaps on anticipated demand-- the Mint can manufacture up to 70 million one-ounce silver bullion coins a year), and sent solicitations to 17 potential suppliers and received only four responses.
Of these four, one submitted first-article samples that passed US Mint first-article tests.
While this makes the number of vendors catering to Mint quite low, the apparent lack of guarantee may deter the vendors from investing further.
Lack of a minimum guarantee
“This issue (shortage) may be addressed by extending some flexibility to U.S. blank fabricators in order to help them invest in additional capital equipment for in-creased capacity, maybe flexibility simply in the form of a minimum quantity order guarantee per annum for a certain period of time.” said Raymond Nessim to the US Congress Subcommittee on Domestic Monetrary Policy and Technology in 2011.
Raymond Nessim is CEO of Manfra, Tordella & Brookes Company, a precious metal wholesale distributor and authorized purchaser of the U.S. Mint and an official distributor for government mints around the world.
No updates in the US Mint website seem to say that a guarantee do exist.
But Richardson of US Mint seems to have an answer for Raymond Nessim as he spoke to Silver News in a different context:
“Precious metal demand can be extremely volatile. After peaking in 2011, our demand in 2012 fell by over 22% in the first half of the year, only to surge again in the last quarter of the year. Our January 2013 demand was up almost 23% from January 2012. This volatility makes forecasting extremely difficult as demand is driven by external factors beyond the Mint’s control.”
Larger-market uncertainty is thus preventing bullion coins from reaching its collectors.
No comments:
Post a Comment